Friday, June 14, 2019
Retail Sales for the month of May came in at +0.5% this morning, below the +0.7% expected, though up big on revisions to April. What was posted last month as a headline of -0.2% in Retail Sales is listed today at +0.3%.
Subtracting volatility in auto sales, we also see +0.5%, ahead of the +0.3% expected. In fact, April’s adjustment from the originally reported +0.1% has been brought up to +0.5%, as well. Ex-autos & gas for May came in at +0.5%. The control number was +0.5%. I’m sensing a pattern here.
Industrial Production for May doubled expectations to +0.4%, nearly a full percentage point above the initially reported -0.5%. Capacity Utilization last month reached 78.1%, ten basis points ahead of consensus. Both of these figures depict further ongoing strength in domestic goods-producing.
These reads will help fortify the understanding of key parts of the U.S. economy for Fed members, who will reconvene next week. Expectations are low that an interest rate change — either higher, as we had thought as recently as late 2018, or lower, which has gathered steam of late — will happen at the June meeting, though it is a much higher possibility of a cut at the Fed’s July meeting.
Why the discrepancy here? We can only deduce that expectations of future economic data is going to show economic weakness relative to what we’ve seen over the past few months, perhaps years. Even the notably strong Q1 GDP headline of 3.1% looks to take a hit in Q2, as a result of less business inventories expected and the fallout of the continuing trade war with China affecting domestic production.
That we’ve not undergone a second front in the trade war, this time with Mexico, will likely keep future economic reads from plummeting. But with May jobs numbers coming in light of the amount needed to make up for retiring baby boomers, for instance, future weakness in economic data will be the biggest signifier in an interest rate cut from the Fed.
At that point, the “bad news” will equal “good news.” But what if the “bad news” isn’t really that bad? Will the relative “good news” equal “bad news” regarding interest rate levels?
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